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Learning, Sharing, and Teaching => Real Estate and Landlording => Topic started by: nawhite on November 13, 2013, 09:56:46 AM

Title: Refinance or not?
Post by: nawhite on November 13, 2013, 09:56:46 AM
House was purchased for 220k but properties have gone up and I think an appraisal would hit 235k minimum probably 240k. Not sure how long we'll stay here but at least another 4 years.

Currently have a 3.9% APR 30 year mortgage for $190k which I pay PMI of $72/month. Current lender would only drop PMI once im at 80% LTV based on original purchase price or if an appraisal says that "structural improvements" have increased the value enough. Simply a rising market isn't good enough.

If I refinance, I'd probably go to a 15 year at 3.2% APR because my monthly payment would only go up about $300. The 30 year mortgages aren't as good as my current one rate wise.

So if I keep what I have, I get an extra 15 years of a 3.9% loan (I would invest extra elsewhere). If I refinance, I save on my interest rate, I save on the PMI and I pay it off 15 years earlier.
Title: Re: Refinance or not?
Post by: TrulyStashin on November 13, 2013, 10:37:53 AM
Couldn't you simply pretend you have a 15 year mortgage now and pay whatever amount you'd pay under the 15 year plan? 

That would accelerate the pay down of your mortgage which would increase your equity and get you out from PMI soon without the closing costs of refinancing.  You owe $190k now and with a purchase price of $220k, once you drop the loan balance below $176 or so you should be entitled to dump PMI.  That's only a $14k difference from your current loan balance.    You can likely get there by aggressively paying down the mortgage instead of refinancing and getting socked with the closing costs (roughly $5k in my experience).

Plus you have a great rate right now and with the 30-year, you can pay aggressively if that works for today's circumstance or pay less aggressively if you want or need to.   

Refinancing is not worth it.  Skin the cat this way, instead.

Title: Re: Refinance or not?
Post by: nawhite on November 13, 2013, 03:04:22 PM
If I'm going to pretend its a 15 year mortgage, why wouldn't I just refinance (lender fees are going to be <$500) and get the lower interest rate?
Title: Re: Refinance or not?
Post by: Exflyboy on November 13, 2013, 03:45:19 PM
Well of course you need to know what the total costs to refinance would be, plus the monthly saving with going to a lower interest rate... Multply that saving by 12 and then by 15 will give you the total paybe.

Compare that to your total cost.

When I was faced with this choice the total costs were something under $1000 to refinance.. But as I only had another 9 months or so before I completely paid off the mortgage it wasn't worth it.

Title: Re: Refinance or not?
Post by: kamikazejello on November 15, 2013, 12:13:47 PM
I think a .7% reduction as well as dropping PMI would be worth it. However, make sure you definitely will stay in your house until your break-even period.  I made the mistake of refinancing with a 20 month break-even period.  I moved 7 months afterwards for a new job which basically cost me about $1,500 due to refinance fees.